GRESB Infrastructure: Filling an ESG Data Gap for Infrastructure Investors

Monday, September 7, 2015

Hot on the heels of the release of the 2015 GRESB data for real estate on September 2, GRESB has more news to share.

Today, in London, GRESB announces a new initiative to provide environmental, social, and governance (ESG) information for investors in and lenders to infrastructure assets and portfolios. This initiative is called GRESB Infrastructure, and it addresses a real and pressing need with a new GRESB assessment and new data for institutional investors.

I want to mark this important milestone by addressing three fundamental questions:

  • What, exactly, is infrastructure?
  • Why is GRESB targeting this issue?
  • What kind of solution is GRESB planning to offer?

Define Infrastructure

Broadly speaking, infrastructure is the foundation and connective tissue of society. The term infrastructure generally refers to physical structures – real assets – such as electricity distribution systems, road and rail transportation, telecommunication systems, pipelines, and a wide variety of similar assets.

There is no doubt about the pressing need to build and maintain our shared infrastructure. Similarly, there is very little disagreement that investment in infrastructure is a powerful economic stimulus that often generates significant increases in economic output. There is a persistent gap between the need for infrastructure investment and actual investment. In 2012, the World Economic Forum has estimated the global need for infrastructure development and maintenance at 4% of global GDP. Yet, actual investment levels are significantly less, leaving a growing deficit that runs into tens of trillions of dollars globally.

With public sector financial resources under stress in many parts of the world, there is a clear need for innovative private-sector financing strategies.

A significant number of institutional investors are beginning to act on this global opportunity. For example, US pension giant CalPERS and Australian-based QIC have recently announced their intention to increase investment in infrastructure.

Investor Needs

Increasing interest in infrastructure investment coincides with increasing recognition of the relevance of environmental, social, and governance (ESG) information in managing investment risk and return. This has translated into grounding demand for ESG information across multiple investment classes, for example CalPERS recently accounted that it will require ESG information for all investments and major European institutions such as PGGM have long-standing commitments to incorporate ESG data into their decision making. For infrastructure investments such information is particularly relevant, as capital commitments can span decades – understanding long-term risk is thus critical.

However, infrastructure presents a challenge as there are no globally established tools to assess, score, and benchmark ESG performance of typical infrastructure investment vehicles. Investors face a patchwork of regional, project-scale tools (e.g., ENVISION in the United States and the Infrastructure Sustainability system in Australia) that have seen low rates of adoption and do not provide a consistent basis to score and benchmark investment opportunities. The absence of a globally applicable, investor-focused ESG assessment creates an information gap for institutional investors.

GRESB Solutions

GRESB will fill the ESG data gap for infrastructure investments by leveraging its existing tools for assessment, validation, and analysis:

  • Assessment: GRESB will create new assessment instrument that leverages GRESB’s well-established system for commercial real estate. The assessment will share critical elements, including the dimensions of Management & Policy and Implementation & Measurement. Specific questions will address aspects of management, climate risk & resilience, performance measurement, and stakeholder engagement.
  • Validation: GRESB will subject data collected from infrastructure funds to its multi-stage data validation process. Developed with input from PwC, GRESB’s validation process includes automated “all participant checks”, manual document review, and site visits.
  • Portfolio Analytics: Critically, GRESB will turn assessment data into actionable insights for investors. This will include peer benchmarking of infrastructure investments with similar features. It also includes leveraging existing features of the GRESB Portal and creating new analytical views within the GRESB Portfolio Analysis Tool. This will allow investors to create customize views of ESG data and weight funds to understand risks and opportunities associated with current and future investment strategies.

The combination of established assessment strategies and new, infrastructure-specific tools will enable GRESB to work quickly fill an important gap in ESG information available to institutional investors.

Next Steps

First, we will kick off the beginning of this important new initiative with events in London on September 7 and, in New York on September 24.

After that, we will quickly get down to business with efforts to design and release the new GRESB Infrastructure assessment in close consultation with a founding group of institutional investors and leaders in the infrastructure construction and engineering industry.

GRESB expects to launch the Infrastructure assessment in Q1 2016. Contact us if you are interested in potentially participating as an investor, fund manager or operator.